Universal Credit (Removal of Two Child Limit) Bill

Baroness Lister of Burtersett Excerpts

2nd reading & Committee negatived & 3rd reading
Thursday 12th March 2026 Lords Chamber

[Baroness Lister of Burtersett (Lab)]

My Lords, it is an honour to follow the wonderful maiden speech of my noble friend Lady Antrobus, which came from both the heart and the head—there is no better combination. As she said, she comes to your Lordships’ House with a background that spans practice and theory, service and scholarship. She is too modest to say just how eminent her record has been in all those spheres. Her speech demonstrates how valuable her contribution will be to the work of this House, at a time when conflict is engulfing so much of the world. I very much look forward to the wisdom that she will bring to debates on these matters.

My noble friend was also able to bring her personal experience of growing up in a single-parent family to bear on the subject of today’s debate. In doing so, she demonstrated the value of the knowledge that comes from lived experience—something that has helped to shape the Government’s child poverty strategy. She brought home very powerfully why it is wrong to suggest that the money spent on the abolition of the two-child limit would be better spent on defence, as the leader of the Opposition said recently. My noble friend’s speech made it clear how the security of the realm and the security of individuals in poverty are intertwined.

This brings me to the Bill. Let us rejoice as we read the death rites on what one eminent social policy professor described as the “worst social policy ever”. As we have heard, what UNICEF UK describes as a “transformative” measure will reduce both the numbers of children in poverty and the depths of poverty. As one mother responded, “Finally all my children will be seen as equals”. I pay tribute to those in government and in civil society who made sure it happened.

The Council of Europe Human Rights Commissioner recently observed that,

“without this step, it would be difficult to imagine an effective overall approach to combating child poverty. It is an important investment in the rights and wellbeing of children”.

He criticised the stigmatising preconceptions about people receiving social security that have marked some political and media reactions to the Bill. These reactions have suggested that somehow spending money on lifting children out of poverty is illegitimate—part of what is dismissed by the Opposition as the “ballooning benefits bill”. This ignores an estimated £50 billion a year hacked off that bill as a result of Tory cuts and restrictions, while official figures show that spending on working-age benefits as a percentage of GDP has not increased and is not projected to increase.

Arguments about the costs of the Bill also ignore, as we have heard, the cost of not acting, in terms of the impact of poverty on public services—notably, health, education and children’s care—and on future employment prospects. We are talking about preventive spending and investment in our children.

It is all too easy for the Opposition to hide their contribution to the worsening of child poverty behind the argument that the answer lies in paid work, full stop. This is despite the fact that, as we have heard, three-fifths of those hurt by the two-child limit have a parent in work and that an estimated 70% of the additional funding will go to that group. More fundamentally, there is a widespread consensus built on academic analysis that removal of the two-child limit is the one most effective measure open to the Government to reduce child poverty at a stroke. To quote CASE at the LSE,

“changes in parental employment, whilst important, will never deliver change to child poverty rates on the scale we need to see. We can only get significant and lasting reductions in child poverty by investing in our social security system. There really is no other way”.

Research by Public First suggests that, when provided with information about the cost-effectiveness of abolition of the limit in reducing child poverty, voters’ support for the measure increases significantly. The same is true of the overall benefit cap.

I am afraid that, here, I have to introduce a note of dissent, which I am sure will not surprise the Minister. It echoes the powerful maiden speech from the noble Baroness, Lady Teather. The Bill’s impact assessment estimates that in 2029-30 around 50,000 households will not gain and 10,000 will only partially gain because of the cap. I find it depressing that the same arguments are used about needing the cap to ensure work incentives as under the previous Government. Yes, the cap may push some parents into paid work, but by driving parents into deep poverty it creates stress and anxiety about making ends meet that makes them less effective jobseekers. This is not, as Ministers assert, in the best interests of children. Indeed, I remind my noble friend that, when the cap was introduced, the official Opposition supported the removal of child benefit from the cap on the grounds that it is received by equivalent working families and that, therefore, in order to create a more level playing field, it should not be included in the cap. Could this be looked at again, please, from the perspective of the best interests of children?

I also urge that, when the threshold limits are reviewed next year, a decision is made to uprate them annually in line with the UC standard allowance, so that we do not see more families pushed into deep poverty by the cap each year. As it is, they have been uprated only once since 2016, when they were cut. They are now worth £5,409 less in London and £4,702 elsewhere as a result.

Two other concerns have been raised about some families who will not benefit or fully benefit from the Bill. The first, raised by CPAG, of which I am honorary president, and Advice NI, relates to some families who, having migrated to UC through the managed migration process, may lose some of their transitional protection. The other, raised by Resolve Poverty, concerns families who may lose as a result of the knock-on effect on their council tax reduction. I do not think that either is mentioned in the impact assessment and I wonder whether my noble friend can throw any light on the numbers likely to be involved.

To return to the good news, the Bill will, in the words of a mother of four quoted by CPAG,

“make a world of difference”.

As the cornerstone of the first UK-wide child poverty strategy since 2010, it symbolises what a Labour Government can do to build a good society.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I understand that, but I have looked at what the last Government spent the money on and at the results, and I do not like them, so we are going to do something different.

My simple view is that if we will the end of tackling child poverty, we have to will the means. We believe that removing this barrier is fundamental. Those young people who were NEETs at 16 did not start at 16: they started without the opportunities, without the education, and without the start in life they should have had. The evidence shows quite clearly that children who grow up in poverty are likely to have poorer mental health, fewer opportunities and less chance to do all those things we want them to do. What we are doing is enabling those people to have opportunities, giving them the start they need. If we can get that in place, the whole country benefits. Instead of supporting people not to work, we are giving them the chance to flourish as individuals and to make the contribution to our society that they will not get the chance to make otherwise.

Before I get myself into any more flights of rhetoric, I should answer some of the questions that have been asked. My noble friend Lady Lister asked about council tax reduction. I think she knows this, but just for the record, local councils are of course responsible for designing and reviewing their own council tax reduction schemes. My department has been working with the MHCLG to communicate the change to local authorities, and they have been encouraged to consider the impact of their schemes in the light of the removal of the two-child limit. In 2029-30 an estimated 560,000 families will see an increase in their universal credit award, with these families gaining, on average, £440 a month. The impact of transitional protection is included in the impact assessment, but not on the numbers of households.

The benefit cap was raised by my noble friend Lady Lister, and by the noble Baronesses, Lady Teather and Lady Bennett, and by my noble friend Lord Davies and a few others. This Government want to preserve the fundamental principle that work is the best route out of poverty. We believe that leaving the overall benefit cap in place encourages personal responsibility while maintaining the incentive to work. Where possible, it is in the best interests of children to be in working households. Being in work substantially reduces the chance of poverty: the poverty rate of children living in households where all adults are in work is 17%, compared to 65% for children who live in households where no adults work. We will continue to protect the most vulnerable—those who are unable to work because of a disability or a caring responsibility are protected and exempted from that.

The noble Baroness, Lady Bennett, asked about numbers. When I answered her Written Question, the impact assessment had not been published at that point. I can say that among households in scope to gain from the removal of the two-child limit in 2029-2030, approximately 50,000 are estimated to be capped before the policy change, and a further 10,000 households will be capped afterwards. In contrast, 550,000 households in Great Britain will gain in full from the removal of the two-child limit in 2029-30, as will an estimated 2 million children in the United Kingdom.

The noble Baroness, Lady Janke, and my noble friend Lady Shah raised the impact of poverty on children and schools—

[Baroness Lister of Burtersett (Lab)]

I am sorry to interrupt my noble friend, but a number of us have made the point about the thresholds for the benefit cap and the fact that child benefit is taken into account. When we were in opposition, we said that child benefit should not be taken into account in the cap. Can she comment on that?

[Baroness Sherlock (Lab)]

I have given the same answer about the levels a number of times. The cap has to be reviewed by 2027. The Secretary of State will review it at the appropriate time, certainly within the statutory deadline, and he will make the judgments he makes at the time. I am happy to convey the comments made on this to my colleagues in the department, but the Government have taken the view that they have on the cap. We will simply have to leave it at that, I am afraid.

On schools and education, it is striking that schools are using their stretched resources on services such as food banks and providing essentials to children. Research by the Joseph Rowntree Foundation shows that now one-third of primary schools run food banks, one-quarter are providing essentials, and 38% say staff provide for pupils and families out of their own pockets. We got the Children’s Commissioner’s office to do some research to support the development of the child poverty strategy. Children and young people spoke about how low income impacts their education and at times limits their career aspirations, including by restricting their access to extracurricular activities. This is an incredibly important point made by my noble friend Lord John, or possibly by my noble friend Lord Walker—I am sorry, I am getting very bad at names. We listened carefully to families when we did that, and the consistent message was that a whole range of benefits came from lifting the two-child limit. It is not just about money; it is about all the things that enables. This goes also to the points made by the noble Lord, Lord Redwood.

As for paying for this, the Government have always made clear how they will pay for things when they announce them. It was made clear that the removal of the two-child limit was fully funded by policies in the Budget, including reforming Motability tax relief, clamping down on fraud and error in tax and social security, and reforming the assessment process. Together, those measures will save £4.9 billion in 2030-31 versus the £3.2 billion cost of removing the two-child limit.

The noble Viscount, Lord Younger, raised the OBR and the welfare cap. The Government are committed to ensuring that social security spending remains on a sustainable path. We set a new welfare cap in the Autumn Budget 2024 to make sure that it remains under control for the course of this Parliament. The forecast for social security spending is virtually unchanged from the last OBR assessment, increasing by only 0.1% in 2029-30 in the forecast. Welfare spending is forecast to rise by less than half the amount it did under the previous Parliament—just over 0.3% of GDP by 2030-31 compared with 0.7% previously—and health and disability spending is expected to rise by only 0.3 percentage points compared with 0.5 under the previous Government. This Government inherited a system which did not do all the things the Opposition say they wanted it to do. In fact, we saw growing numbers of people economically inactive as a result of ill health and disability. That graph went up. We have been working hard to bend that graph by taking the steps needed to do it.

On employment, parental employment rates are already high, but if we want to get more parents into work, it is important that we remove the barriers to getting them there. One of the key barriers is childcare. That is why we have announced 30 hours of funded childcare for working parents, saving eligible families using all 30 hours up to £7,500 per eligible child per year. When we talk about the parents in larger families being in work, one of the challenges was childcare again. We are extending eligibility for universal credit upfront childcare costs to parents returning from parental leave to ease that transition back to work, and we are providing UC childcare support to help with the childcare costs of all children, instead of limiting it to two children, so that parents who have larger families can afford to go back to work. It clearly is not about work or social security; it is about social security enabling work and supporting it, as the noble Lord, Lord Bird, said so clearly. We know that there is more to do, which is why we are committing to a review led by the Department for Education across government about access to early education and childcare support and delivering a simpler system.

What is coming next? We have been clear that the child poverty strategy will not solve problems overnight. This is one step in a journey looking forward 10 years. We have already made a number of significant steps: investing heavily in expanding free school meals; introducing a fair repayment rate into universal credit; investing in support to help people with their energy bills; investing in support across the piece; raising the minimum wage; looking at what is happening with affordable housing; and investing in helping people to get into secure jobs.

The most important thing will be to monitor that, to make sure that we do it. There will be a comprehensive programme of analysis, making sure that we know the exact impact of the changes we are making. If the Opposition are worried, we will be monitoring the impact of what we do. This will enable us to work with government departments and the devolved Governments to consider what we do in future and to capture the data as we go.

This Government are determined to break down barriers to opportunity, to deliver economic growth and to raise living standards. Removing the two-child limit in universal credit remains the single fastest and most cost-effective lever we have to reduce the number of children growing up in poverty. It is at the heart of a wider strategy to drive down child poverty and set the next generation up for success. Far from being anti-work, this strategy includes our plan to make work pay, to improve job security and living standards, and to enable people to get on into work. We do not simply want to move people from being out of work into jobs from which they can never progress. If we want social mobility, we need to enable people to develop skills so that we can become a high-skilled, high-wage, high-investment economy, as we have been challenged to do. We have also announced increased universal credit support, getting people into work and into more hours because, above all, we believe in the value of every person and the contribution they can make.

The noble Baroness, Lady Teather, and the right reverend Prelate the Bishop of Leicester made some very interesting points. Part of what we have to do is to invest in communities and relationships. All we can do with money is remove barriers. What we need to do as a country is look at how we engage with our neighbours and our communities, and how we can support all those in our communities to develop and to fulfil their potential.

My noble friend Lord John said that a Labour Government are nothing if they do not do something to tackle poverty and inequality. That is exactly what we are doing here today. The Bill, along with the wider actions in the child poverty strategy, will help deliver the biggest reduction in child poverty over a Parliament since comparable records began in the 1990s. It is time to put this counterproductive and cruel policy into the dustbin of history, and to focus instead on building a system that gives children and their families the security and opportunities to build a better life, no matter their background. I commend the Bill to the House.

Bill read a second time. Committee negatived. Standing Order 44 having been dispensed with, the Bill was read a third time and passed.